Mid-Continent Life (OK)
Court Postpones Confirmation Hearing
On December 1, Oklahoma District Court Judge Noma Gurich ruled that there was no urgency to sell Mid-Continent's insurance business by year-end and postponed the confirmation hearing for the proposed sale of the business to Life Investors Insurance Company. The receiver for Mid-Continent had argued that certain tax benefits would be lost if the business was not sold by December 31, 1999.
Judge Gurich also reversed her prior ruling and rejected a $5 million "break-up fee" provision that had been included in the receiver's proposed rehabilitation plan for the benefit of Life Investors. Finally, Judge Gurich ruled that three other companies, whose proposals to acquire Mid-Continent's business had been previously rejected by the receiver, would have the opportunity to present proposals for the court's consideration. The three companies, American Fidelity Assurance Company, MEGA Life Insurance Company and the Rainbolt Group, were recently granted intervention status in the proceedings.
Task Force Chair - Sonya Ekart; Staff Contact - Bill O'Sullivan Thunor TrustMississippi; Missouri Assumptions Close
On December 9, the four Assumption Reinsurance Agreements with Madison National Life closed. The policyholders of First National Life Insurance Company of America (MS), Franklin Protective Life Insurance Company (MS), Family Guaranty Life Insurance Company (MS), and International Financial Services Life Insurance Company (MO) -- a total of 113,000 policyholders -- are now in a safe, sound home with Madison National.
Guaranty Associations provided approximately $117 million to fund the closings. The Liquidators were parties to the agreements, but were not able to contribute any estate assets at this time.
Task Force Chair - Chuck LaShelle; Staff Contact - Executive Life (CA)Closing Shortfall Lump Sum Schedule; Changes to Schedule 9.3.3
Arthur Andersen has just issued a report on Addendum 3 to the Section 6.4.1 Pre Closing Shortfall Lump Sum Schedule recently sent to NOLHGA by Aurora. This schedule is a list of Executive Life SPIA, CQRA and Allocated QRA covered contracts that were terminated before the Closing Date because of death. This addendum is comprised of 55 contracts, which increase guaranty association liability by an aggregate of $88,000. Nineteen participating guaranty associations are affected. Arthur Andersen found no reason to contest these Section 6.4.1 changes.
A copy of the Addendum 3 and Arthur Andersen's Report were sent to the 19 affected guaranty associations. The nineteen states are AL, AZ, CA, FL, GA, IL, KY, MA, MD, MN, MO, NC, NJ, OH, PA, TA, WA, WI and WV. Other participating guaranty associations may request a copy by calling Meg Melusen.
Arthur Andersen is completing a report on A-2 Changes to the Section 9.3.3 Schedule, involving Batch 3 of Life Policy changes. The Report will be mailed to affected guaranty associations in the near future.
Task Force Chair - Art Dummer; Staff Contact - Kentucky Central Life (KY)Litigation Concluded
The policyholder claim litigation filed in Washington State Superior Court against NOLHGA, the KCL Liquidator, and Jefferson-Pilot, the assuming carrier, has been dismissed upon the Liquidator's deposit into the court of $257,500.00 in policy proceeds and interest.
This action was based on a claim to collect proceeds under a life insurance policy issued by KCL in 1984 insuring the life of Julianna M. Schubert. Based on available facts, it appears that a claim was made under the policy and initially denied by the KCL estate because the claimant was unable to provide evidence of death or establish whether the death occurred before or after KCL's insolvency. New evidence subsequently emerged out of a civil wrongful death action in which a jury concluded that the death occurred prior to KCL's insolvency. The jury went on to conclude, however, that the decedent had been slain by her husband, who happened to be the primary beneficiary under the policy.
Although named as a defendant in this action, NOLHGA was never served and made no appearance in the case. Upon receiving proof of death, the KCL Liquidator and Jefferson-Pilot filed a joint answer to the complaint, including a counterclaim joining certain third party defendants (competing beneficiaries) and asking permission to deposit the policy proceeds with the court pending final determination of rights as between the competing claims of the potential beneficiaries. On November 4, 1999, the court entered an order providing for dismissal of all claims under or related to the policy upon deposit of the policy proceeds, retaining jurisdiction only for the purpose of determining the rights as between the competing beneficiaries. The court accepted deposit of the proceeds on November 18, 1999, thereby concluding the litigation except to the extent of determining proper beneficiaries.
Task Force Chair - John Colpean; Staff Contact - Joni ForsytheNAIC Fall Meeting
The following is a summary of some important issues covered at the Fall NAIC meeting:
Insolvency EX(5) Subcommittee Working Groups
Receiver's Handbook Working Group
The Receiver's Handbook Working Group approved materials on Year 2000 issues and amendments to Chapter 9 - Legal Considerations for incorporation into the Handbook.
The Working Group also reviewed a draft of proposed materials on HMO insolvencies to be included in Chapter 8 - Special Insolvencies. It was reported that the draft would be expanded to discuss reinsurance, accounting issues specific to health maintenance organizations, and guaranty association protection. The Working Group scheduled an interim meeting to be held on January 19, 2000 for the purpose of finalizing the HMO materials so that they would be ready for approval at the NAIC Spring 2000 meeting.
Uniform Receivership Law Working Group
The Working Group formed a Technical Support Group (TSG) for the purpose of responding to the Working Group's questions regarding the Uniform Receivership Law. The TSG, which will be chaired by Robert Greer (Greer Law Offices), will be comprised of various interested parties, including representatives from NOLHGA, the ACLI and the NCIGF. Some of the issues raised for the TSG's consideration include: (i) whether the URL diminishes the authority of Insurance Commissioners over receiverships, (ii) whether the adoption of the URL would undermine legal precedent established under existing receivership law, (iii) whether the adoption of the URL would result in the loss of reciprocal state status and (iv) the appropriateness of the URL provision allowing guaranty associations to serve as deputy receiver.
Guaranty Fund Issues Working Group
The Guaranty Fund Issues Working Group discussed the recently enacted Financial Services Modernization Law and the preparation of a policy statement in response to the law. The policy statement will identify and analyze issues arising from the law with respect to insurance company receiverships and guaranty associations. Given the effective date of the law, the Working Group plans to complete work on the policy statement by the Spring 2000 meeting.
Federal Issues Discussion Group
The Federal Issues Discussion Group discussed two cases dealing with the issue of whether federal or state courts have jurisdiction over a receiver's claims for breach of contract under reinsurance agreements. In both cases, the receiver had filed state court actions against a reinsurer for breach of contract claims and the reinsurer had removed the case to federal court for the purpose of compelling arbitration pursuant to the terms of the reinsurance agreement. Ultimately, both courts held that federal abstention was not required, that federal court jurisdiction was not reverse preempted by the McCarran Ferguson Act, and that the contract provisions requiring arbitration were enforceable against the receiver. The cases discussed are: Koken v. Cologne Reinsurance 34 F.Supp.2d 240 (January 26, 1999) and Nichols v. Vesta Fire Insurance Corporation 56 F.Supp.2d 778 (July 21, 1999).
Insolvency (EX5) Subcommittee
Richard W. Klipstein, NOLHGA Executive Vice President, provided the Subcommittee with a report on assessments and capacity of the Life and Health Insurance Guaranty System.
The Subcommittee heard reports from each of its working groups: Uniform Data Standards Working Group, Receivership Handbook Working Group, Uniform Receivership Law Working Group, Guaranty Fund Issues Working Group and Federal Issues Discussion Group.
Finally, Michael Surguine (NAIC Staff) reviewed proposed amendments to the NAIC Administrative Supervision Model Act and the NAIC Insurers Rehabilitation and Liquidation Model Act (IRLA) to allow state, federal and international regulatory and law enforcement authorities to share information without compromising confidentiality and applicable privileges. The Subcommittee adopted the proposed amendments together with an amendment to Section 65 of IRLA providing that the sharing of information between guaranty associations and receivers would not result in the waiver of applicable privileges.
(EX) Special Ad Hoc HMO Insolvency Committee
The Ad Hoc Committee on HMO Insolvency reviewed (i) a draft paper on HMO rate adequacy considerations, (ii) a report on the work of the Health Organizations Risk Based Capital working group and the Health Entities working group and (iii) a list of potential recommendations for preventing and protecting consumers from HMO/managed care insolvencies. It is anticipated that the paper on HMO rate adequacy will be finalized by the NAIC Spring 2000 meeting.
The Committee plans to make recommendations to state insurance departments regarding actions that can be taken in the short term to address HMO/managed care insolvency issues. The Committee also will forward for the consideration of the Regulatory Framework (B) Task Force a list of potential recommendations for addressing HMO/managed care insolvency issues. Most of the potential recommendations involve changes to the current HMO Model Act. However, the list also will include a proposal for creating a new guaranty fund mechanism and/or using the existing life/health guaranty system to protect consumers from HMO insolvencies.
It is anticipated that the Ad Hoc HMO Committee will be disbanded by year-end, and that the Regulatory Framework (B) Task Force will be responsible for formulating final recommendations for addressing the HMO/managed care insolvency issues.
Interstate Insurance Receivership Commission
The Commission voted to amend the Uniform Receivership Law: (i) to clarify the effective date of the URL to avoid the possibility that the URL could be adopted without provisions dealing with guaranty associations and (ii) to provide that Section 507 (Executory Non-Insurance Contracts) does not apply to insurance and reinsurance policies regardless of whether such policies are entitled to executory contract treatment. In addition, the Commission voted to expose an amendment to the URL addressing the priority of certain "stable value" products in insurer insolvency proceedings.
In an informal meeting following the Commission's meeting, the Insurance Commissioners from the compacting states inquired about industry's support for expanding the Compact to include additional states. The Commissioners stated their intent to issue a letter on the current and future prospects for the Compact.
Staff Contact - Sean McKennaCALENDAR/CONFERENCE CALLS
December 16: Centennial Task Force Meeting, Chicago, IL
December 16: Thunor Trust Working Group Meeting, Jackson, MS
December 20: Canadian bar date for filing any guaranty association claims, including those for unpaid assessments.